Scrapping the pension lifetime allowance won’t just help the rich

The Chancellor’s critics will say that his bold pension reform plans are just another boost for the rich, but that is wrong. While the increase in the annual allowance and the abolition of the lifetime allowance will obviously enable more high earners to build better pensions, they will also provide a universal boost to employment, health and growth. The wider economic and social benefits of simplifying pension tax rules should not be overlooked.

Ever since Gordon Brown first introduced some of the various pension tax allowances, it has always seemed nonsensical to have both annual and lifetime limits. If you restrict the amounts people can contribute each year, surely you want them to invest the money to build a good fund over time. But having a lifetime limit penalises them if their investments are very successful – so we end up with a system with fewer and worse investments, probably holding back the entire economy. Everyone suffers as a result.

There have been few better examples of this race to the bottom than in the NHS, where the lifetime limit encouraged some of our most experienced health professionals into early retirement. Recent surveys have suggested that over 40 per cent of older GPS and senior consultants were planning to leave the health service in the next few years. It was vital for the Chancellor to stop the pension system from undermining post-covid health services.

The NHS has also exposed the problems with the annual allowance, which was deterring consultants from working longer hours to cover staff shortages. After receiving surprise tax bills for tens of thousands of pounds, who wouldn’t hesitate about taking on extra shifts? Increasing the annual allowance will reduce these problems, although I would have liked to see the abolition of the pernicious tapered system for higher earners, which still has the potential to catch people out.

It’s difficult to argue that sorting out such issues, which must affect other vital public services, is a policy dedicated to the rich alone. In the first instance, it will help to reduce the NHS backlog – and since one of the causes of economic inactivity is long-term health problems, that should help employment levels to rise, and with that a sense of fulfilment. Many of the seven million people who are desperately waiting for planned medical treatments, such as cataract operations, will have a vastly improved quality of life.

The Chancellor’s reforms will also improve our long-term economic growth. They can pave the way for more pension-fund investments in growthboosting projects which can provide good returns over time. These investments could support our national infrastructure, technology development, social housing, green growth and nature preservation. It is about time we freed up the £4050 billion that government pays into people’s pension funds each year to improve our national wealth.

At the core of our recent pensions problems has been a discomfort towards good fund performance. This has been the enemy of successful investing, which ultimately makes us all poorer. It’s time to recognise that a rising tide can lift all boats – and continue reforms that keep talented people in work, improve our health and pave the way for more money for growthboosting investments.